Western Banks’ Withdrawal From East Eases: Vienna Group

Western banks slowed their retreat
from emerging Europe in the third quarter, the Vienna Initiative
group of international lenders and regulators said.

Western banks cut their exposure in the region by 0.5
percent of gross domestic product between June and September
when excluding Russia and Turkey. That was the fifth quarterly
reduction and it brought the cumulative amount withdrawn since
mid-2011 to 4.6 percent of GDP, the group said today in an e-
mailed statement.

The slump in the euro region, the top destination for
emerging Europe’s exports and the main source of its investment
and bank financing, has slowed growth and cut access to capital.
Foreign lenders, including Erste Group Bank AG (EBS), which own about
three-quarters of banks in the continent’s east, are trimming
financing and capital to their units as stricter regulations
require them to repair balance sheets.

Funding reductions “moderated further in the third quarter
of 2012, but did not stop or reverse,” the Vienna Initiative
said. “The slowdown of de-leveraging in the third quarter
likely reflects improved financing conditions for cross-border
banking groups based in western Europe.”

Including Turkey and Russia the reduction in funding was
less than 0.1 percent of GDP, the group said in its quarterly
de-leveraging monitor. While Hungary and Slovenia had funding
reductions of 2 percent of GDP or more, Slovakia and Montenegro
received large inflows, it said.

Rebalancing Funding

“Banks are in the process of rebalancing the funding of
their subsidiaries toward local sources, in an effort to roll
back the excesses of the boom period,” the group said.

The Vienna Initiative group of banks, regulators and policy
makers helped prevent an east European financial collapse in
2008 and 2009 by persuading western banks to stay invested in
the region and roll over financing when needed. The group
includes international financial institutions, such as the
International Monetary Fund, the World Bank, the European
Investment Bank and the European Bank for Reconstruction and
Development.

The group also said the high rate of non-performing loans
needs to be addressed in some countries in the region.

“It will be critical to clean balance sheets from non-
performing loans, which can act as a drag on new credit
provision,” it said.